George Osborne © Flickr.com
by Filippo Amodeo Grabau
On his trip to China in September 2015, surrounded by the electrifying atmosphere of the Shanghai Stock Exchange, British Chancellor of the Exchequer, George Osborne, referred to the reestablishment of the “UK-China relationship for many years to come” as the “Golden Era.” He said this with the intention of bringing Britain back to its glory years “by sticking together” with the People’s Republic of China.
Setting aside Prime Minister David Cameron’s meeting with the Dalai Lama in 2012, which resulted in a freezing of UK-China relations, President Xi Jinping’s visit to Great Britain in mid-October was met with much pomp and circumstance. It is the last part of a long-term plan to enhance investment and economic cooperation between the two countries. This includes agreements on newly issued renminbi-denominated bonds on the London Stock Market, licenses for British banks to operate in China and most importantly, an £18 billion project to build a nuclear power plant at Hinkley Point near Somerset. Osborne’s intention to bolster Britain’s economic and geopolitical position by aligning with China is a gamble, as the Asian giant appears to be weakening. Moreover, the peculiar role of the US in this field deserves at least some mention.
George Osborne, a leading advocate of austerity policies designed to reduce the United Kingdom’s debt, seems almost desperate in his courting of Chinese investment. He is seeking investment in very sensitive and strategic sectors such as the energy sector, and in the UK, debate has surfaced around the issue of opening up infrastructure systems to foreign financing.These debates have also engendered deep concern among British consumers as to what will happen to their bills. Indeed, the Hinkley Point plant is not the only nuclear power plant which is set to be financed by Chinese investments; the other two involve the renovation of existing plants in Sizewell and Bradwell.
The financial aspects of the accords are also highly important. As previously mentioned, the London Stock Market will issue renminbi-denominated bonds in the near future, but this is only the beginning. The sale of one-year bills by the People’s Bank of China in London have proven very successful with five million renminbi already sold. This is due to investor excitement surrounding safe and remunerative financial tools. Moreover, a massive 350 billion renminbi currency swap has been agreed upon between the two countries, ensuring financial stability in import/export markets for British companies and a rapid covering of the bond market in case of a liquidity shortage.
While the Chancellor of the Exchequer stated that “the vast size and potential of China’s economy means that they will continue to be a key driver of world growth for decades to come,” these agreements come at a time when China’s growth seems more vulnerable than it has for a number of years. As The Economist explains, official data on China’s economic situation are in fact rather strange. Although at first they seem to suggest impressive growth, they indicate a consistent slow-down from the pace to which the world has become accustomed.
Concerns directed towards China’s human rights record also seem to have been treated by Britain as issues of minor importance. As Osborne stated in an interview in The Economist: “I don’t think we have to choose between being partners in China’s economic development and being proud defenders of British values.” In addition, Chinese-authored cyber attacks against other countries are a major problem, especially in light of their investments in nuclear power on British soil. Chinese cyber offensives perpertrated against American companies and the government — namely “Operation Aurora” in 2009 — are still alive in the minds of many people.
Britain’s recent posturing marks a clear change in its geopolitical perspective. Its attempt to temper US influence and to focus on developing links with emerging economies was made clear in March 2015 with its decision to join the Asian Infrastructure Investment Bank, challenged by the US as a potentially destructive rival to the World Bank. Furthermore, the ambiguous intentions of Great Britain towards the European Union (the “in or out” referendum is to be held before the end of 2017) suggest that these economic arrangements with China may be a move to gain a strategic geopolitical position, making clear its will to break from tradition by acting against the US and its aim of greater autonomy, whether that be with or without membership in the EU. Ultimately, despite Osborne’s optimistic spirit at the Shanghai Stock Exchange conference, only the stabilization of China’s economic growth can guarantee a payoff.